BEHIND THE HEADLINES: Worrell’s New York update on economy
It was a familiar scene: Government and Opposition in the House of Assembly trading charges about the economy, its current performance and where it is heading.
It’s the annual debate on the Appropriation Bill, what many people prefer to call the Estimates of Revenue and Expenditure, and the key voices to which people are listening are those of the Minister of Finance, Chris Sinckler; Opposition Leader Mia Mottley, and former prime minister and minister of finance, Owen Arthur, now an Independent.
The charges and counter-charges, including wastage of public funds, the potential bankruptcy of the Barbados Water Authority, the mountain of debt on the nation’s books, the widening deficit, the Central Bank printing of money and the mortgaging of young people’s future leave hundreds of thousands of people unsure about what is on the horizon.
Enter Dr DeLisle Worrell, Governor of the Central Bank, who doesn’t have a voice in either the House or the Senate but whose work and economic reports are on the minds of most parliamentarians and on Wall Street.
Actually, Worrell came to New York City the other day and met with Wall Street economists and their firms, especially Moody’s and Standard & Poor’s, whose downgrades of Barbados’ rating dumped it into junk bond territory.
During a town hall meeting held at a Brooklyn church, Worrell assessed the contents of the proverbial economic cup and found it half-full but not half-empty. Indeed, he argued Barbados was on a “solid” and “soundly-based” growth path, which merited a credit rating upgrade.
“We had a very good tourist year in 2015 and graph growth [economic] estimates were about half per cent,” he said. “We are in the process of revising those estimates so we think it is more like one per cent last year. This year 2016 we think that for the next five years we will have a little less than two per cent about 1.7 per cent or thereabouts. We can do better. The growth is soundly based.” As for the future of the Barbados’ economy it was essentially built on a few pillars. The first is tourism. Hence, the current efforts to improve and refurbish the “product”, so to speak, meaning the hotels, restaurants and cultural heritage.
Next is the financial services sector which has been facing “many challenges” and Worrell thinks its medium term prospects are very good. He based that conclusion on the fact: “We are not a tax haven. We do not exist to enable people to avoid paying taxes in Canada or wherever activity originates.”
The fact is that the offshore financial sector is that Barbados is facing increasing competition not simply from its Caribbean neighbours but from the Pacific, New York and Europe. Ireland, Vermont, California, London and Ireland come quickly to mind.
He was quick to cite the rum industry as a success story. Its “value added” was in the country and everything from production, bottling and aging to labelling were in Barbados.
Interestingly, he sees alternative energy – especially solar – as a major opportunity, a chance to slash the oil import bill and save foreign exchange. When the use of alternative energy reaches full throttle, it would help “transform the economy” and spur annual economic growth.
But there is another side to the picture he painted. It is dominated by the fallout from excessive Government red tape and from relatively low labour productivity in both the public and private sectors.
“In most international comparisons we do very well but in the area of the ease of doing business and in the Government bureaucracy in general, we do very badly,” was the way he put it. “This is an area we need to address. Our general levels of labour productivity are also not increasing commensurate with the increased unit cost of labour. Those were the two major issues. We have the Social Partnership framework which offers us mechanisms through which we can address but most of the work still needs to be done. We need to continue to focus on that.”
But if unproductive Bajan workers are a big elephant in the room, so too is the Government deficit which remains high on the radar screen of the rating agencies of Moody’s and S&P whose rating downgrades have had a dramatic negative affect on the country’s ability to borrow.
“It makes it too expensive for us to borrow [on the foreign financial market]. We can always borrow but the interest rates that are being demanded because of our low credit rating are of such that it really wouldn’t be wise for us to borrow at those rates,” the Governor told the Bajans. “We don’t need to [borrow]. We do have adequate reserves but it nice [to be able to do so]. What we haven’t been able to do is to restore the reserves we lost in 2013.”
But the message from Wall Street was clear.
“The problem is that we still have not brought the fiscal deficit down to a level that people [on Wall Street] are comfortable with,” observed the Governor
The bottom line is that Barbados is far from being out of the woods and will not emerge from its economic troubles unless and until the Government tackles the deficit head-on. That would mean carrying out the restructuring of state enterprises, reducing the waste and boosting efficiency, all promises the Government made a few years ago but did not complete.
What’s clear from all of this is that Barbados is far being out of the economic woods. Too many Cabinet ministers and others are wasting time talking about what they inherited from the previous administration instead of solving the problems on their plates in 2016. They often ignore that after eight years in office, they can’t hold onto what they found in 2008 as a reason why today’s challenges exist. The political “statute of limitations” has run out on the things they may have inherited.